MIR Report

The Big Picture (MIR 673)

The following are 10 reasons
why the reign of the dollar as the world reserve currency is about to come to
an end....

#1 China And Japan Are Dumping
the U.S. Dollar In Bilateral Trade

A few months ago, the second
largest economy on earth (China) and the third largest economy on earth (Japan)
struck a deal which will promote the use of their own currencies (rather than
the U.S. dollar) when trading with each other. This was an incredibly important
agreement that was virtually totally ignored by the U.S. media. The following
is from a BBC report
about that agreement....

China and Japan have unveiled
plans to promote direct exchange of their currencies in a bid to cut costs for
companies and boost bilateral trade.

The deal will allow firms to
convert the Chinese and Japanese currencies directly into each other.

Currently businesses in both
countries need to buy US dollars before converting them into the desired
currency, adding extra costs.

#2 The BRICS (Brazil, Russia,
India, China, South Africa) Plan To Start Using Their Own Currencies When
Trading With Each Other

The BRICS continue to flex
their muscles. A new agreement will promote the use of their own national
currencies when trading with each other rather than the U.S. dollar. The
following is from a news source
in India....

The five major emerging
economies of BRICS -- Brazil, Russia, India, China and South Africa -- are set
to inject greater economic momentum into their grouping by signing two pacts
for promoting intra-BRICS trade at the fourth summit of their leaders here
Thursday.

The two agreements that will
enable credit facility in local currency for businesses of BRICS countries will
be signed in the presence of the leaders of the five countries, Sudhir Vyas,
secretary (economic relations) in the external affairs ministry, told reporters
here.

The pacts are expected to
scale up intra-BRICS trade which has been growing at the rate of 28 percent
over the last few years, but at $230 billion, remains much below the potential
of the five economic powerhouses.

#3 The Russia/China Currency
Agreement

Russia and China have been
using their own national currencies when trading with each other for more than a
year now. Leaders from both Russia and China have been strongly
advocating for a new global reserve currency for several years, and both
nations seem determined to break the power that the U.S. dollar has over
international trade.

#4 The Growing Use Of Chinese
Currency In Africa

Who do you think is Africa's
biggest trading partner? It isn't the United States. In 2009, China became Africa's
biggest trading partner, and China is now aggressively seeking to
expand the use of Chinese currency on that continent.

A report from Africa’s largest
bank, Standard Bank, recently stated the following....

We expect at least $100
billion (about R768 billion) in Sino-African trade – more than the total
bilateral trade between China and Africa in 2010 – to be settled in the
renminbi by 2015.

China seems absolutely
determined to change the way that international trade is done. At this point,
approximately 70,000 Chinese
companies are using Chinese currency in cross-border transactions.

#5 The China/United Arab
Emirates Deal

China and the United Arab
Emirates have agreed to ditch the U.S.
dollar and use their own currencies in oil transactions with each
other.

The UAE is a fairly small
player, but this is definitely a threat to the petrodollar system. What will
happen to the petrodollar
if other oil producing countries in the Middle East follow suit?

#6 Iran

Iran has been one of the most
aggressive nations when it comes to moving away from the U.S. dollar in
international trade. For example, it has been reported that India will begin to use gold
to buy oil from Iran.

Tensions between the U.S. and
Iran are not likely to go away any time soon, and Iran is likely to continue to
do what it can to inflict pain on the United States in the financial world.

#7 The China/Saudi Arabia
Relationship

Who imports the most oil from
Saudi Arabia? It is not the United States. Rather, it is China.

As I wrote about the other
day, China imported 1.39 million
barrels of oil per day from Saudi Arabia in February, which was a 39 percent
increase from one year earlier. Saudi Arabia and China have teamed up to
construct a massive new oil refinery in Saudi Arabia, and leaders from both
nations have been working to aggressively expand trade between the two nations.

So how long is Saudi Arabia
going to stick with the petrodollar
if China is their most important customer?

That is a very important
question.

#8 The United Nations Has Been
Pushing For A New World Reserve Currency

The United Nations has been issuing
reports that openly call for an alternative to the U.S. dollar as
the reserve currency of the world.

A global currency, bancor,
issued by a global central bank (see Supplement 1, section V) would be designed
as a stable store of value that is not tied exclusively to the conditions of
any particular economy. As trade and finance continue to grow rapidly and
global integration increases, the importance of this broader perspective is
expected to continue growing.

#10 Most Of The Rest Of The
World Hates The United States

Global sentiment toward the
United States has dramatically shifted, and this should not be underestimated.

Decades ago, we were one of
the most loved nations on earth.

Now we are one of the most
hated.

If you doubt this, just do
some international traveling.

Even in Europe (where we are
supposed to have friends), Americans are treated like dirt. Many American
travelers have resorted to wearing Canadian pins so that they will not be
treated like garbage while traveling over there.

If the rest of the world still
loved us, they would probably be glad to continue using the U.S. dollar. But
because we are now so unpopular, that gives other nations even more incentive
to dump the dollar in international trade.

So what will happen if the
reign of the U.S. dollar as the world reserve currency comes to an end?

Well, some of the potential
effects were described in a recent article by Michael Payne....

The demise of the dollar will
also bring radical changes to the American lifestyle. When this economic
tsunami hits America, it will make the 2008 recession and its aftermath look
like no more than a slight bump in the road. It will bring very undesirable
changes to the American lifestyle through massive inflation, high interest
rates on mortgages and cars, and substantial increases in the cost of food,
clothing and gasoline; it will have a detrimental effect on every aspect of our
lives.

Most Americans don't realize
how low the price of gasoline in the United States is compared to much of the
rest of the world.

There are areas in Europe
where they pay about twice what we do for gasoline. Yes, taxes have a lot to do
with that, but the fact that the U.S. dollar is used for almost all oil
transactions also plays a significant role.

Today, America consumes nearly
a quarter of the world's oil. Our entire economy is based upon our ability to
cheaply transport goods and services over vast distances. So what happens if
the price of gasoline doubles or triples from where it is at now?

In addition, if the reign of
the U.S. dollar as global reserve currency ends, the U.S. government is going
to have a much harder time financing its debt. Right now, there is a huge
demand for U.S. dollars and for U.S. government
debt since countries around the world have to keep huge reserves of
U.S. currency lying around for the sake of international trade.

But what if that all changed?
What if the appetite for U.S. dollars and U.S. debt dried up dramatically? That
is something to think about. At the moment, the global financial system is
centered on the United States.

But that will not always be
the case. The things talked about in this article will not happen overnight,
but it is important to note that these changes are picking up steam.

Under the right conditions, a
shift in momentum can become a landslide or an avalanche. Clearly, the
conditions are right for a significant move away from the U.S. dollar in
international trade.

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